The good and bad of multiple home loan pre-approvals

Is it necessary to have multiple home loan pre-approvals?

Being pre-approved for a home loan can help narrow your property hunt significantly, since you’ll have a set budget in mind while you do your searching. Also, getting pre-approved and knowing your budget for a home loan sets you in a good spot to put a price at an auction.

But, a pre-approval (or conditional approval) is only an initial phase in the home loan application process. It’s not an assurance that your home loan application will be approved; merely an indicator that your mortgage application is in check with the lender’s standards.

When a lender has already pre-approved you for a loan based on your income and credit standing, they are likely to give you a formal approval. While likely, exceptions to this can happen. For example the property’s valuation comes in short to meet the pre-approved LVR (loan to value ratio), or there’s a substantial change in your financial circumstances at the time you seek formal approval.

Two kinds of home loan pre-approvals

There are two kinds of home loan pre-approvals: system-generated and full. Both need you to lodge a completed application with supporting documents such as payslips and bank account statements. The key difference is in the method that the documentation is evaluated by a lender.

For system-generated pre-approvals, your supporting details will not be extensively evaluated by the lender. Your application is instead checked by a system with intricate algorithms and rules set against the lender’s standard criteria. This type of pre-approval is received instantly or after only a couple of hours. However, it has some conditions attached to it, since it’s completely centred on the data you entered into a system that has not been completely authenticated by the lender. If you need to know the minimum loan amount you may be able to borrow without having an effect on your credit score, this type of pre-approval may be for you.

It could take several days for a full pre-approval to be issued, yet it can save you plenty of time during the final approval of the home loan. This kind of pre-approval comprises a complete analysis of your documents, plus a credit check, making it trustworthy to the lender compared to a system-generated pre-approval. The majority of lenders will only offer you a pre-approval once they are happy with the information and documents you have supplied.

Keep in mind that a pre-approval is still entirely provisional. It is subject to an adequate assessment of the property you wish to purchase and assumes no substantial changes in your financial position at the time of formal approval.

Your pre-approval is also only valid for a specific period, usually between three and six months. You should apply again for a pre-approval or ask for an extension from your lender if you haven’t found your ideal property during this period.

Having several pre-approvals for a home loan

Though it’s helpful to get pre-approval before making an offer on a property, having multiple pre-approvals can do more harm than good.

Whenever you apply for a full pre-approval, the lender organizes a credit check that warrants an inquiry on your credit portfolio. Excessive applications for credit in little time will influence your credit score, and ultimately impact your ability to get finance. Also, numerous pre-approval home loan applications may lead a lender to believe you’re running into financial difficulties, which can lessen your likelihood of being approved.

You might want to compare different lenders. It is ideal to be pre-approved by the lender you want to borrow from. Rather than getting several pre-approvals, you can seek assistance from a mortgage broker in choosing a suitable home loan with a cutting-edge rate and features you need.

Though the pre-approval procedure is pretty straightforward, seeking professional advice from a broker can make it a smooth process even until the loan is approved and eventually settled.

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